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THE mad rush into coal-fired power generation is fuelling rising concerns that we could be heading in the wrong direction in planning for our future power needs.
The concerns are particularly warranted when one looks at how a revolution in renewable energy is sweeping the world, while here we remain stuck in a highly obsolete model for contracting future power needs.
That model is the IPP policy of 1994, which provided for such a fortress of protections against any eventuality that a private investor in the power sector would enjoy that it made it practically impossible for these investments to actually lose money. No wonder the framework proved highly popular.
But it is now so woefully outdated that it needs to be scrapped altogether. This is a good time to consider the question, because the government is in the middle of preparing a new power policy that they want to announce before the end of their term. So allow me to make a few suggestions.
First, we need a mechanism whereby a daily release is put out telling us the sources from where all the power in the grid in the last 24 hours was generated. Other countries began doing so years ago, and last year Germany hit the jackpot when in one such release it showed that 100 per cent of the electricity in the grid in the preceding 24 hours had come from renewable resources.
We remain stuck in a highly obsolete model for contracting future power needs.
That proportion will vary from one day to the next, but measuring it on a daily basis allows us to at least have a benchmark to work with, then set targets where we can ask how we can raise the mean average of daily renewable power in the grid by five more percentage points in some specified time frame, let’s say next quarter or next six months of whatever.
Second, we need to start telling the distribution companies that they must raise the amount of electricity they buy from net metering in order to qualify for more power purchases from the grid. In the early stages of the policy, for example, they can be told that the ratio of power purchased from the grid to that purchased from consumers via net metering must be 10 to one (for argument’s sake). In subsequent years, this proportion can be increased until it reaches parity, where the amount of power that distribution companies can buy from the grid cannot exceed the amount they have purchased from consumers through net metering.
The reason for doing this is to incentivise distribution companies to start chasing their consumers with various product offerings that involve licences for net metering and solar rooftop panels. At the moment, consumers have to chase the companies to get a net metering licence. This equation needs to be reversed. Remember when one had to chase the only telephone company in the country in order to get a telephone connection? Today, telecom operators are chasing consumers, offering connections. The idea is to produce this effect in power distribution too.
Third, distribution companies can be incentivised to involve banks for lending to consumers to purchase solar rooftop panels. Once a consumer’s premises have been surveyed by a team, and an optimum solar rooftop system identified for those premises, the consumer can be told that the bank will pay for the system, which will be procured from an approved panel of suppliers, and the loan will be repaid through the monthly power bills.
This will provide the bank the guarantee of repayment, the consumer the comfort of no upfront cost and the distribution company a product offering that they can advertise to their clients through their bills. Identifying the right clients to target the offering also becomes easy with the power consumption information that the distribution company already possesses.
For the banks, there is an assurance that the monthly payments will be paid, because they will be collected through the power bills, and doing a credit test will be easy: has the consumer been regular in making monthly power bill payments, let’s say over three years?
For consumers, there would be the prospect of getting a full solar solution for their home with no upfront cost. For the first five years, or whatever repayment plan they opt for much like in a car loan, the savings from the net metering solution will go to the bank.
But once paid off, consumers are in the clear, with a virtually free and continuous supply of clean electricity with no further cost other than maintenance and replacement.
The point is that for the renewable revolution to take off in a country like Pakistan, the distribution companies need to be incentivised to pursue it individually with each consumer. In time, the schedule of incentives offered to the distribution companies and the consumers can be further refined.
The State Bank can run special schemes, like it does for textile exporters, to offer lower interest rates for those opting for net metering. The regulator can offer lower tariffs for them too. The distribution company can earn reward points for surpassing their net metering targets for any given period, which can be encashed in their tax returns.
This is the sort of direction we need from now on when planning all future power expansion in power generation capacity. The team currently in power are the right people to think along these lines, because from the prime minister to his advisers on finance, they are from the private sector. They understand that the new world of today is better driven by skills and innovation, risk and incentives, unlike their counterparts in the bureaucracy who remain wedded to decades-old frameworks of jobs, protections and sovereign guarantees.
This is the sort of thinking that our power system needs at this time. So please, no more upfront tariffs, and let’s not waste any more time debating between take and pay vs take or pay.
The writer is a member of staff.
Twitter: @khurramhusain
Published in Dawn, February 8th, 2018
